Governor’s income tax elimination plan could tax services instead
COLUMBIA, Mo. (KMIZ)
Gov. Mike Kehoe might be looking to phase out income tax in 2026, but to do that, the state would have to expand the sales tax base to include services, according to conservative group Americans For Prosperity.
The governor hasn't released a plan to eliminate income tax, but a spokesperson said Thursday that he will unveil his tax and spending plan for fiscal 2027 at the State of the State Address on Jan. 12. That plan will be "comprehensive and responsible," the governor's office said.
Americans For Prosperity has been working closely with the governor to craft a plan that will keep more money in Missourians' paychecks, legislative director Camellia Peterson said. The governor plans to phase out the income tax over five to 10 years, Peterson said.
Income tax accounts for about two-thirds of Missouri's general revenue, according to the Missouri Budget Project. The state has to make up that loss from somewhere.
The bottom 20% of Missouri workers pay about 0.5% of their income, the top 20% pay about 3.6% and everyone in between pays somewhere between 1.4% and 3.6%, according to the Institute on Taxation and Economic Policy.
Peterson said the governor's plan would include widening the sales tax base to include services while also cutting spending. For example, realtor transaction fees and accounting services would be taxable under this proposed plan, Peterson said. Health care services would be exempt from this tax.
"Broadening the sales tax base really does help people at lower income levels because it also gives you more choice in how much tax you pay when there are budget shortfalls or when things get tight," Peterson said.
The Missouri Realtors Association did not respond to a request for comment.
Traci Gleason from the Missouri Budget Project said services could include repairs, lawn service and pet grooming.
Missouri voters passed a ballot initiative in 2016 to keep sales and use taxes off services, according to Gleason.
Gleason said the top 1% of earners contribute about 62% of their income to income tax, and this acts as a tax break for the upper class.
The other way the governor could make up for the income tax revenue is to increase sales tax, Gleason said.
The Missouri Budget Project estimates that sales tax would have to be about 12% to completely replace income tax, and when that's combined with other local taxes, that number could jump to 17% to 19%.
Gleason said this projected sales tax could be costly for Missourians.
"We don't add up the sales taxes that we pay every single day, and so it seems like it's going to be something that's going to help people, but when you add up what they're actually paying, it's going to hurt most Missourians in the long run," Gleason said.
Peterson said the governor isn't planning on an increase in sales tax. However, the governor hasn't released his official plan.
The plan would also need voter approval because it's considered a new tax, Peterson said. It would be on the 2026 ballot.
